Coronavirus News Asia

Gold, Xiaomi shine in risk-off market ahead of IMF forecast

Hong Kong: Financial markets took a step back on Wednesday after a spike in coronavirus cases in several countries and amid worries that investors were too optimistic in predicting the momentum of the recovery.  

“The markets were too fast in pricing the end of the lockdown and the recovery ahead,” Pascal Blanque, Group Chief Investment Officer at Amundi Asset Management, said. 

“Current valuations are the result of a liquidity-driven rally and are being sustained in the short term only thanks to continued aggressive monetary expansion,” Blanque said. “In the second part of the year a reality check on earnings growth has to be considered and we suggest combining a high level of liquidity with some exposure to cyclical assets that offer high-performance potential in the event that a favorable scenario plays out.”

The Nikkei 225 ended marginally lower and the S&P ASX 200 inched up 0.19%. The Hang Seng index retreated 0.5% after Tuesday’s sharp rally and China’s benchmark CSI300 added 0.42% as Beijing said it can now administer more than 300,000 nucleic acid tests per day compared with 40,000 in March. The fast-track approach comes as officials say the coronavirus outbreak that began at a wholesale food market in Beijing is under control.

Gold rose 0.2% and US Treasuries climbed, with the 10-year yield declining a basis point to 0.7%.

Breakout in gold tipped

Analysts expect a breakout in gold prices. 

“The precious metal broke out of its recent consolidation at the back end of last week, taking out key resistance around $1,745,” said Fawad Razaqzada, a market analyst at TF Global Markets. “The metal hasn’t looked back since, as every short-term dip has been supported. For a long as price holds $1,745 now, the path of least resistance would remain to the upside. The bulls are eyeing $1,800 next, where we may see some profit-taking should gold get there.”

Some trepidation has also set in ahead of the IMF’s release of new 2020 growth projections on Wednesday at 1300 GMT.

The release assumes greater importance after the institution’s Gerry Rice said last Thursday: “The de facto lockdown in the US has continued for longer than we had anticipated … This is likely to mean the contraction in the second quarter will be deeper than we had anticipated previously, and that the pace of recuperation, may be slower.” 

 Earlier in the day, New Zealand’s decision to keep rates unchanged without expanding its quantitative easing (QE) program, was in line with a Bloomberg poll and has not changed analyst expectations that the central bank will cut rates into negative territory next year.

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